What changed in this filing

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Item 1A. Risk Factors

2022-02-17 compared with 2021-02-17 · 116 added, 145 removed, 482 unchanged (35% of the section changed)

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Risks Related to Our Business and Operations

• actual or threatened public health epidemics or outbreaks, such as the COVID-19 pandemic, and governmental and private measures taken to combat such health crises;

• economic, regulatory, socio-economic and/or technology changes that impact the real estate market generally, or that could affect patterns of use of commercial office space;

• economic, regulatory, socio-economic and/or technology changes that impact the real estate market generally, or that could affect patterns of use of commercial office space, such as work-from-home practices and utilization of co-working space;

• competition in the leasing market;

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• development and construction delays;

• our development strategies may not be successful;

• our redevelopment and development strategies may not be successful;

• actual or threatened public health epidemics or outbreaks, such as the COVID-19 pandemic and the emergence of variant strains, and governmental and private measures taken to combat such health crises;

• future terrorist attacks;

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• liability for environmental contamination or adverse environmental conditions in our buildings;

• failure to comply with the Americans with Disabilities Act or similar regulations;

• physical and transitional effects of climate change;

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• ineffective disclosure controls or internal controls;

• failure to comply with the Americans with Disabilities Act or similar regulations;

Risks Related to Our Organization and Structure

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• our board of directors can take many actions without stockholder approval;

• our board or directors can issue stock with terms that may subordinate the rights of our common stockholders which may discourage a takeover;

• our board of directors can issue stock with terms that may subordinate the rights of our common stockholders which may discourage a takeover;

• our board of directors could elect for us to be subject to certain Maryland law limitations on changes in control that could prevent transactions;

• our rights and the rights of our stockholders to recover claims against our directors and officer are limited;

• our rights and the rights of our stockholders to recover claims against our board of directors and officers are limited;

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• our distributions do not qualify for certain reduced tax rates;

• a re-characterization of transaction may result in lost tax benefits or prohibited transactions;

• a re-characterization of transactions may result in lost tax benefits or prohibited transactions;

• adverse changes in state and local tax laws;

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• continuing to incur mortgage or other debt;

• high interest rates;

• rising interest rates;

• restrictive debt covenants;

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• changes in interest rates that impact our interest rate derivative contracts;

• change in the method pursuant to which the LIBOR rates are determined and the phasing out of LIBOR after 2021;

• replacement of USD LIBOR with Secured Overnight Financing Rate ("SOFR");

• a downgrade in our credit rating;

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• future offering of debt securities;

• changes in interest rates;

• market interest rates changes and resulting effect on the value of our common stock;

• securities analysts' coverage of our common stock.

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Risks Related to Our Business and Operations

Actual or threatened public health epidemics or outbreaks, such as the COVID-19 pandemic that the world is currently experiencing, and governmental and private measures taken to combat such health crises, could have a material adverse effect on our business operations and financial results.

The COVID-19 pandemic that the world is currently experiencing has adversely impacted the U.S.

and global economies and our business and results of operations, changing in several ways the manner in which we operate with more emphasis on tenant and employee wellness, higher reliance on remote connectivity, and increased monitoring of tenant credit-worthiness.

Various mandates from international, federal, state and local authorities requiring forced closures or other restrictions continue to impact certain markets in which our buildings are located.

Although some of these restrictions have been relaxed in certain jurisdictions, others have been reinstated in areas that experienced a resurgence of COVID-19 cases.

Such restrictions have affected the global economy and the regional U.S.

economies in which we operate, and have negatively impacted some of our tenants' ability to pay their rent.

As a result, we have entered into lease modification agreements with approximately 70 of our tenants who have experienced disruptions in their business as a result of the pandemic.

Most of these agreements deferred the payment of all or some portion of three to four months of rent until 2021.

The restrictions put in place to combat the pandemic have also caused certain of our retail and restaurant tenants to close or operate at reduced capacity for an extended period of time, which could cause such tenants to default on their leases.

Our tenants' inability to pay rent under our leases could adversely affect our own liquidity, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms in the future.

Although various governmental financial programs may mitigate the risk of our tenants being unable to pay their rent under our leases, governmental assistance may not be available to all affected tenants or may be significantly delayed or discontinued.

Piedmont has an approximately $4.6 million general reserve as of December 31, 2020 related to tenant lease-related assets.

There can be no assurances that this amount will be sufficient to cover any future losses of rental income should these tenants be unable to pay back deferred rents when such rents become due.

The measures taken to curb the spread of COVID-19 may increase our costs, which may not be fully recoverable under our leases or adequately covered by insurance, and could impact our profitability.

In addition, these same factors may cause prospective tenants to delay their leasing decisions or to lease less space.

The prevalence of work-from-home policies as a result of the pandemic may alter tenant preferences and/or demand in the long term with respect to leasing office space.

The impact on our operations and those of our tenants of the COVID-19 pandemic and of actions taken to contain it remains highly uncertain and difficult to predict, and will depend on future developments, including the scope, severity and duration of the pandemic, the success of the actions taken to contain and treat the virus, the availability and effectiveness of vaccines or other treatments, and the availability of government assistance.

The long-term impact of COVID-19 on the U.S.

and global economies could cause a prolonged world-wide economic downturn or recession and may lead to corporate bankruptcies among our tenants.

Any of these developments, and other effects of the ongoing global pandemic of COVID-19 or any other pandemic, epidemic or outbreak of contagious diseases, could have a material adverse effect on our business and results of operations.

In addition, many of the other risk factors described herein are heightened by the effects of the COVID-19 pandemic and related economic conditions, which could result in material adverse effects on our business and results of operations.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for additional information on how we have been impacted by the COVID-19 pandemic and the steps we have taken in response.

Economic, regulatory, socio-economic and/or technology changes that impact the real estate market generally, or that could affect patterns of use of commercial office space, may cause our operating results to suffer and decrease the value of our real estate properties.

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If our properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then our ability to make distributions to our stockholders could be adversely affected.

In addition, there are significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes, and maintenance costs) that generally do not decline when circumstances reduce the income from the property.

In addition, there are significant expenditures associated with an investment in real estate (such as debt payments, real estate taxes, insurance, and maintenance costs) that generally do not decline when circumstances reduce the income from the property.

The following factors, among others, may adversely affect the operating performance and long- or short-term value of our properties:

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• local office market conditions such as employment rates and changes in the supply of, or demand for, space in properties similar to those that we own within a particular area;

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• changes in the patterns of office or parking garage use due to telecommuting or work-from-home arrangements becoming more prevalent or that reduce the demand for office workers or parking spaces generally;

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• changes in market rental rates and related concessions granted to tenants including, but not limited to, free rent, and tenant improvement allowances;

• the financial stability of our tenants or groups of tenants in specific industry sectors (such as the oil and gas, hospitality, travel, and co-working sectors), including bankruptcies, financial difficulties, or lease defaults by our tenants;

• the financial stability of our tenants or groups of tenants in specific industry sectors (such as the oil and gas, hospitality, travel, retail, and co-working sectors), including bankruptcies, financial difficulties, or lease defaults by our tenants;

• the inability to finance property development or acquisitions on favorable terms;

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• earthquakes, tornadoes, hurricanes and other natural disasters, civil unrest, terrorist acts or acts of war, which may result in uninsured or under-insured losses;

• health crises such as the spread of communicable diseases;

• health crises such as the spread of communicable diseases and governmental or private measures taken to combat such health crises;

• changes in, or increased costs of compliance with, governmental regulations, including those governing usage, zoning, the environment, and taxes;

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If our competitors offer office accommodations at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants upon expiration of their existing leases.

Even if our tenants renew their leases or we are able to re-let the space to new tenants, the terms and other costs of renewal or re-letting, including the cost of required renovations or additional amenities, increased tenant improvement allowances, leasing commissions, declining rental rates, and other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures.

Even if our tenants renew their leases or we are able to re-let the space to new tenants, the terms and other costs of renewal or re-letting, including the cost of required

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renovations or additional amenities, increased tenant improvement allowances, leasing commissions, declining rental rates, and other potential concessions, may be less favorable than the terms of our current leases or require significant capital outlays.

If we are unable to renew leases or re-let space in a reasonable time, or if rental rates decline or tenant improvements, leasing commissions, or other costs increase, our financial condition, operating results, or cash flows could be adversely affected.

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Dallas, Atlanta, Washington, D.C., Minneapolis, Boston, Orlando, and New York.

Collectively, these seven metropolitan areas accounted for approximate ly 96% of our ALR as of December 31, 2020.

Collectively, these seven metropolitan areas accounted for approximately 96% of our ALR as of December 31, 2021.

As a result, we are particularly susceptible to adverse market conditions in these cities, including any reduction in demand for office properties, industry slowdowns, civil unrest, governmental cut backs, relocation of businesses and changing demographics.

Adverse economic or real estate developments in these markets, or in any of the other markets in which we operate, or any decrease in demand for office space resulting from the local or national government and business climates, could adversely affect our rental revenues and operating results.

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Adverse economic or real estate developments in these markets, or in any of the other markets in which we operate, or any decrease in demand for office space resulting from the local or national government and business climates or changing office market trends, could adversely affect our rental revenues and operating results.

We depend on tenants for our revenue, and accordingly, lease terminations and/or tenant defaults, particularly by one of our significant lead tenants, could adversely affect the income produced by our properties.

The success of our investments materially depends on the financial stability of our tenants, any of whom may experience a change in their business at any time.

Many of our tenants may be adversely impacted by the specific consequences of the COVID-19 pandemic or various geopolitical developments that negatively affect international trade, including the uncertainty surrounding the terms of the United Kingdom’s withdrawal from the European Union or the implementation of tariffs on imported or exported goods.

Many of our tenants have been adversely impacted by the specific consequences of the COVID-19 pandemic or various geopolitical developments that negatively affect international trade.

If any of our tenants, or groups of tenants in specific industry sectors, experience or anticipate an adverse change in their respective businesses for any reason, they may delay lease commencements, decline to extend or renew their leases upon expiration, fail to make rental payments when due, or declare bankruptcy.

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In certain cases, such early terminations can be effectuated by our tenants with little or no termination fee being paid to us.

To the extent that our tenants exercise early termination rights, our cash flow and earnings will be adversely affected, and we can provide no assurances that we will be able to generate an equivalent amount of net rental income by leasing the vacated space to new third party tenants.

We may face additional risks and costs associated with directly managing properties occupied by government tenants.

We currently own four properties in which some of the tenants are federal government agencies.

Lease agreements with these federal government agencies contain certain provisions required by federal law, which require, among other things, that the contractor (which is the lessor or the owner of the property) agree to comply with certain rules and regulations, including but not limited to, rules and regulations related to anti-kickback procedures, examination of records, audits and records, equal opportunity provisions, prohibitions against segregated facilities, certain executive orders, subcontractor costs or pricing data, and certain provisions intended to assist small businesses.

Through one of our wholly-owned subsidiaries, we directly manage properties with federal government agency tenants and, therefore, we are subject to additional risks associated with compliance with all such federal rules and regulations.

We currently own five properties in which some of the tenants are federal government agencies.

Lease agreements with these federal government agencies contain certain provisions required by federal law, which require, among other things, that the lessor or the owner of the property complies with certain rules and regulations, including but not limited to, rules and regulations related to anti-kickback procedures, examination of records, audits and records, equal opportunity provisions, prohibitions against segregated facilities, certain executive orders, subcontractor costs or pricing data, and certain provisions intended to assist small businesses.

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rules and regulations.

We face additional risks and costs associated with directly managing properties occupied by government tenants, including an increased risk of default by such tenants during periods in which state or federal governments are shut down or on furlough.

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One of our wholly-owned subsidiaries is considered a government contractor, increasing the risk that requirements of these equal opportunity provisions, including the requirement to prepare affirmative action plans, may be determined to be applicable to the entire operations of our company.

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Adverse market and economic conditions may cause us to recognize impairment charges on tangible real estate and related lease intangible assets or otherwise impact our performance.

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As a result of competition, we may be unable to acquire additional properties, the purchase price may be significantly elevated, or we may have to accept lease-up risk for a property with lower occupancy, any of which could adversely affect our financial condition, results of operations or cash flows.

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Future acquisitions of properties may not yield anticipated returns, may disrupt our business, and may strain management resources.

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• we may not achieve expected cost savings and operating efficiencies;

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• we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;

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The illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties.

Because real estate investments are relatively illiquid and large-scale office properties such as many of those in our portfolio are particularly illiquid, our ability to sell promptly one or more properties in our portfolio in response to changing economic, financial, and investment conditions is limited.

Because real estate investments are relatively illiquid and large-scale office properties such as those in our portfolio are particularly illiquid, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial, and investment conditions is limited.

The real estate market is affected by many forces, such as general economic conditions, availability of financing, interest rates, and other factors, including supply and demand, that are beyond our control.

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Our inability to dispose of assets at opportune times or on favorable terms could adversely affect our cash flows and results of operations.

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We may not be able to dispose of properties that no longer meet our strategic plans or to timely and efficiently apply the proceeds from any disposition of properties.

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In addition, we will be subject to normal lease-up risks relating to newly constructed projects.

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Projects with long lead times may increase leasing risk due to changes in market conditions.

Our real estate development strategies may not be successful.

Our real estate redevelopment and development strategies may not be successful.

From time to time, we engage in various development and redevelopment activities to the extent attractive projects become available.

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• substantial renovation and development activities may require a significant amount of management’s time and attention, diverting their attention from our other operations.

Actual or threatened public health epidemics or outbreaks, such as the COVID-19 pandemic that the world is currently experiencing, as well as governmental and private measures taken to combat such health crises, could have a material adverse effect on our business operations and financial results.

The COVID-19 pandemic that the world is currently experiencing has adversely impact the U.S.

Various mandates from international, federal, state and local authorities requiring forced closures or other restrictions continue to impact certain markets in which our buildings are located.

Although some of these restrictions have been relaxed in certain jurisdictions, others have been reinstated in areas that experienced a resurgence of COVID-19 cases and the emergence of variant strains.

Such restrictions have affected the global economy and the regional U.S.

economies in which we operate, and

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have negatively impacted some of our tenants’ ability to pay their rent.

Our tenant’s inability to pay rent under our leases could adversely affect our own liquidity, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms in the future.

Piedmont has a $4.0 million general reserve as of December 31, 2021 related to tenant lease related assets.

There can be no assurances that this amount will be sufficient to cover any future losses of rental income should our tenants be unable to pay rents when such rents become due.

Future terrorist attacks, armed hostilities, or civil unrest in the major metropolitan areas in which we own properties could significantly impact the demand for, and value of, our properties.

Our portfolio of properties is primarily located in the following major metropolitan areas:

Dallas, Atlanta, Washington, D.C., Minneapolis, Boston, Orlando, and New York, any of which could be, and some of which have been, the target of terrorist attacks or armed hostilities.

Future terrorist attacks and other acts of hostility or war could severely impact the demand for, and value of, our properties.

Dallas, Atlanta, Washington, D.C., Minneapolis, Boston, Orlando, and New York, any of which could be, and some of which have been, the target of terrorist attacks, armed hostilities, or civil unrest.

Future terrorist attacks and other acts of hostility, civil unrest, or war could severely impact the demand for, and value of, our properties.

Terrorist attacks, other armed hostilities, or civil unrest in and around any of the major metropolitan areas in which we own properties also could directly impact the value of our properties through damage, destruction, loss, or increased security costs, and could thereafter materially impact the availability or cost of insurance to protect against such acts.

Attacks or armed conflicts could result in increased operating costs including building security, property and casualty insurance, and property maintenance.

As a result of terrorist activities or other armed hostilities, the cost of insurance coverage for our properties could also increase.

Attacks, armed conflicts, or civil unrest could result in increased operating costs including building security, property and casualty insurance, and property maintenance.

As a result of terrorist activities, other armed hostilities or civil unrest, the cost of insurance coverage for our properties could also increase.

In addition, our insurance policies may not recover all our property replacement costs and lost revenue resulting from an attack.

A decrease in demand could also make it difficult to renew or re-lease our properties at lease rates equal to or above historical rates.

To the extent that any future terrorist attacks or armed hostilities otherwise disrupt our tenants’ businesses, it may impair our tenants’ ability to make timely payments under their existing leases with us, which would harm our operating results.

To the extent that any future terrorist attacks, armed hostilities, or civil unrest otherwise disrupt our tenants’ businesses, it may impair our tenants’ ability to make timely payments under their existing leases with us, which would harm our operating results.

We face risks related to the occurrence of cyber incidents, or a deficiency in our cybersecurity, which could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

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Any or all of the preceding risks could have a material adverse effect on our results of operations, financial condition and cash flows.

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Insider or employee cyber and security threats are increasingly a concern for all companies, including ours.

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Although we make efforts to maintain the security and integrity of these types of information technology networks and related systems, and despite various measures we have implemented to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches

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evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected.

Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.

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Replacing insurance coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency could adversely impact our results of operations and cash flows.

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Our joint venture investments could be adversely affected by a lack of sole decision-making authority and our reliance on joint venture partners’ financial condition.

From time to time we may enter into strategic joint ventures with institutional investors to acquire, develop, improve, or dispose of properties, thereby reducing the amount of capital required by us to make investments and diversifying our capital sources for growth.

From time to time we may enter into strategic joint ventures with institutional investors to acquire, develop, and/or improve properties, thereby reducing the amount of capital required by us to make investments and diversifying our capital sources for growth.

Such joint venture investments involve risks not otherwise present in a wholly-owned property, development, or redevelopment project, including but not limited to the following:

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• such co-venturer may, at any time, have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals;

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• such co-venturer may be in a position to take action contrary to our instructions, requests, policies or objectives, including our current policy with respect to maintaining our qualification as a REIT;

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• our relationships with our co-venturers are contractual in nature and may be terminated or dissolved under the terms of the applicable joint venture agreements and, in such event, we may not continue to own or operate the interests or assets underlying such relationship or may need to purchase such interests or assets at a premium to the market price to continue ownership;

• disputes between us and our co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and efforts on our business and could result in subjecting the properties owned by the applicable joint venture to additional risk;

• disputes between us and our co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and board of directors from focusing their time and efforts on our business and could result in subjecting the properties owned by the applicable joint venture to additional risk;

• we may, in certain circumstances, be liable for the actions of our co-venturers, and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even though we do not control the joint venture.

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Any material expenditures, liabilities, fines, or damages we must pay will reduce our net income and cash flows.

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As the present or former owner or operator of real property, we could become subject to liability for environmental contamination, regardless of whether we caused such contamination.

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Some of our properties are adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances.

In addition, certain of our properties are on, adjacent to, or near sites upon which others, including former owners or tenants of our properties, have engaged, or may in the future engage, in activities that have released or may have released petroleum products or other hazardous or toxic substances.

In addition, certain of our properties are on,

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adjacent to, or near sites upon which others, including former owners or tenants of our properties, have engaged, or may in the future engage, in activities that have released or may have released petroleum products or other hazardous or toxic substances.

The cost of defending against claims of liability, of remediating any contaminated property, or of paying personal injury claims could reduce our net income and cash flows.

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To the extent that climate change causes variations in weather patterns, our markets could experience increases in storm intensity, larger flood zones, and/or rising sea-levels.

Over time, these conditions could result in physical damage to our buildings or a decline in demand for office

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space in our buildings.

Over time, these conditions could result in physical damage to our buildings or a decline in demand for office space in our buildings.

Climate change could also indirectly negatively impact our business by causing increased costs associated with property and casualty or flood insurance, energy, or storm cleanup.

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Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to us and/or our tenants.

Policy action around climate change such as implementing carbon-pricing mechanisms to reduce green house gas emission, shifting energy use toward lower emission sources, adopting energy-efficiency solutions, encouraging greater water efficiency measures, and promoting more sustainable land-use practices can result in financial impacts to both us and our tenants.

Alterations to third-party certifications/ratings may impact investor or tenant demand and consequential valuation for buildings with lower scoring.

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Climate change has also been identified as a potential source of reputational risk tied to changing customer or community perceptions of an organization's contribution to or detraction from the transition to a lower-carbon economy.

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We depend on key personnel, each of whom would be difficult to replace.

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From time to time, we may be subject to legal action arising in the ordinary course of our business or otherwise.

Such action could distract key personnel from management of the company and result in additional expenses which, if uninsured, could adversely impact our earnings and cash flows, thereby impacting our ability to service our debt and make quarterly distributions to our stockholders.

There can be no assurance that our insurance policies will fully cover any payments or legal costs associated with any potential legal action.

Further, the ultimate resolution of such action could impact the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

If our disclosure controls or internal controls over financial reporting are not effective, investors could lose confidence in our reported financial information.

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Our charter and bylaws contain provisions that may have the effect of delaying, deferring, or preventing a change in control of our company (including an extraordinary transaction such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock or otherwise be in the best interest of our stockholders.

These provisions include, among other things, restrictions on the ownership and transfer of our stock, advance notice requirements for

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stockholder nominations for directors and other business proposals, and our board of directors’ power to classify or reclassify unissued shares of common or preferred stock and issue additional shares of common or preferred stock.

These provisions include, among other things, restrictions on the ownership and transfer of our stock, advance notice requirements for stockholder nominations for our board of directors and other business proposals, and our board of directors’ power to classify or reclassify unissued shares of common or preferred stock and issue additional shares of common or preferred stock.

In order to preserve our REIT status, our charter limits the number of shares a person may own, which may discourage a takeover that could result in a premium price for our common stock or otherwise benefit our stockholders.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT for federal income tax purposes.

Our charter, with certain exceptions, authorizes our board of directors to take such actions as are necessary and desirable to preserve our qualification as a REIT for federal income tax purposes.

Unless exempted by our board of directors, no person may actually or constructively own more than 9.8% (by value or number of shares, whichever is more restrictive) of the outstanding shares of our common stock or the outstanding shares of any class or series of our preferred stock, which may inhibit large investors from desiring to purchase our stock.

This restriction may have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock or otherwise be in the best interest of our stockholders.

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Our board of directors can take many actions without stockholder approval.

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Our board of directors could elect for us to be subject to certain Maryland law limitations on changes in control that could have the effect of preventing transactions in the best interest of our stockholders.

Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under certain circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us, or these certain provisions may also impede a change of control under certain circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

• “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or any affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter impose supermajority voting requirements on these combinations;

• “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, except solely by virtue of a revocable proxy, entitle the stockholder to exercise one of three increasing ranges of voting power in electing candidates for the board of directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

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of our outstanding voting stock or any affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter impose supermajority voting requirements on these combinations;

• “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, except solely by virtue of a revocable proxy, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

Our bylaws contain a provision exempting any acquisition by any person of shares of our stock from the control share acquisition statute, and our board of directors has adopted a resolution exempting any business combination with any person from the business combination statute.

As a result, these provisions currently will not apply to a business combination or control share acquisition involving our company.

However, our board of directors may opt into the business combination provisions and the control share provisions of Maryland law in the future.

However, our board of directors still has the ability to opt into the business combination provisions and the control share provisions of Maryland law in the future.

Our charter, our bylaws, the limited partnership agreement of our operating partnership, and Maryland law also contain other provisions that may delay, defer, or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

In addition, the employment agreements with certain of our executive officers contain, and grants under our incentive plan also may contain, change-in-control provisions that might similarly have an anti-takeover effect, inhibit a change of our management, or inhibit in certain circumstances tender offers for our common stock or proxy contests to change our board.

Our rights and the rights of our stockholders to recover claims against our directors and officers are limited, which could reduce our recovery and our stockholders’ recovery against them if they negligently cause us to incur losses.

Our rights and the rights of our stockholders to recover claims against our board of directors and officers are limited, which could reduce our recovery and our stockholders’ recovery against them if they negligently cause us to incur losses.

Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interest and with the care that an ordinarily prudent person in a like position would use under similar circumstances.

Our charter eliminates our directors’ and officers’ liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property, or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action.

Our charter and bylaws require us to indemnify our directors and officers to the maximum extent permitted by Maryland law for any claim or liability to which they may become subject or which they may incur by reason of their service as directors or officers, except to the extent that the act or omission of the director or officer was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, the director or officer actually received an improper personal benefit in money, property, or services, or, in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.

As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law, which could reduce our and our stockholders’ recovery from these persons if they act in a negligent manner.

In addition, we may be obligated to fund the defense costs incurred by our directors and officers (as well as by our employees and agents) in some cases.

Our charter eliminates our board of directors’ and officers’ liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property, or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action.

Our charter and bylaws require us to indemnify our board of directors and officers to the maximum extent permitted by Maryland law for any claim or liability to which they may become subject or which they may incur by reason of their service as members of the board of directors or officers, except to the extent that the act or omission of the director or officer was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, the director or officer actually received an improper personal benefit in money, property, or services, or, in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.

As a result, we and our stockholders may have more limited rights against our board of directors and officers than might otherwise exist under common law, which could reduce our and our stockholders’ recovery from these persons if they act in a negligent manner.

In addition, we may be obligated to fund the defense costs incurred by our board of directors and officers (as well as by our employees and agents) in some cases.

Risks Related to Tax Matters

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federal income tax on its taxable income at corporate rates.

Moreover, unless the non-

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qualifying REIT were to obtain relief under certain statutory provisions, the non-qualifying REIT also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost.

Moreover, unless the non-qualifying REIT were to obtain relief under certain statutory provisions, the non-qualifying REIT also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost.

This treatment would reduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability to us for the years involved.

As a result of such additional tax liability, we might need to borrow funds or liquidate certain investments on terms that may be disadvantageous to us in order to pay the applicable tax.

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Failure of our operating partnership to be treated as a disregarded entity or a partnership would have serious adverse consequences to our stockholders.

If the IRS were to successfully challenge the tax status of the operating partnership or any of its subsidiary partnerships or real estate ventures for federal income tax purposes, the operating partnership or the affected partnership or real estate venture would be taxable as a corporation.

In such event, we would cease to qualify as a REIT and the imposition of a corporate tax on the operating partnership, subsidiary partnership, or real estate venture would reduce the amount of cash available for distribution from the operating partnership to us and ultimately to our stockholders.

Changes in tax laws may eliminate the benefits of REIT status, prevent us from maintaining our qualification as a REIT, or otherwise adversely affect our stockholders.

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A number of the changes that affected noncorporate taxpayers will expire at the end of 2025 unless Congress acts to extend them.

Among other changes, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), signed into law on March 27, 2020, makes certain changes to H.R.1.

These changes impacted us, our stockholders, and our tenants in various ways and the IRS continues to issue clarifying guidance with respect to certain of the provisions of H.R.

1 and the CARES Act, any of which may be adverse or potentially adverse compared to prior law.

1, any of which may be adverse or potentially adverse compared to prior law.

Additional changes to tax laws are likely to continue to occur in the future.

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If there is a change in the tax laws that prevents us from qualifying as a REIT, that eliminates REIT status generally, or that requires REITs generally to pay corporate level income taxes, our results of operations may be adversely affected and we may not be able to make the same level of distributions to our stockholders, and changes to the taxation of our stockholders could have an adverse effect on an investment in our common stock.

Investors are urged to consult with their own tax advisor with respect to the impact of recent legislation on ownership of shares and the status of legislative, regulatory, or administrative developments and proposals, and their potential effect on ownership of shares.

Even if we qualify as a REIT, we may incur certain tax liabilities that would reduce our cash flow and impair our ability to make distributions.

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federal income taxes or state taxes, which would reduce our cash available for distribution to our stockholders.

For example, we will be subject to federal income tax on any undistributed taxable income.

For example, we will be subject to federal income tax on any undistributed REIT taxable income.

Further, if we fail to distribute during each calendar year at least the sum of (a) 85% of our ordinary income for such year, (b) 95% of our net capital gain income for such year, and (c) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the sum of (i) the amounts actually distributed by us, plus (ii) retained amounts on which we pay income tax at the corporate level.

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This could cause us to recognize taxable income prior to the receipt of the associated cash.

1 also includes limitations on the deductibility of certain compensation paid to our executives, certain interest payments, and certain net operating loss carryforwards, each of which could potentially increase our taxable income and our required distributions.

However, under H.R.

1, as modified by the CARES Act, federal net operating losses incurred in taxable years beginning after December 31, 2017 can be carried forward indefinitely.

Net operating

1 also includes limitations on the deductibility of certain compensation

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losses of a REIT may not be carried back to any taxable year, regardless of whether the taxpayer qualified as a REIT in such taxable year.

In addition, beginning after December 31, 2017, H.R.

1 had limited the deduction of net operating losses to 80% of current year taxable income (determined without regard to the deduction for dividends paid).

The CARES Act eliminates this 80% limitation for taxable years beginning before January 1, 2021.

paid to our executives, certain interest payments, and certain net operating loss carryforwards, each of which could potentially increase our taxable income and our required distributions.

1, federal net operating losses incurred in taxable years beginning after December 31, 2017 can be carried forward indefinitely.

Net operating losses of a REIT may not be carried back to any taxable year, regardless of whether the taxpayer qualified as a REIT in such taxable year.

In addition, for taxable years beginning after December 31, 2017, H.R.

1 limits the deduction of net operating losses to 80% of current year taxable income (determined without regard to the deduction for dividends paid).

Additionally, Section 163(j) of the Code, as amended by H.R.

1, limits the deductibility of net interest expense paid or accrued on debt properly allocable to a trade or business to 30% of “adjusted taxable income,” subject to certain exceptions, plus the taxpayer’s business interest income for the tax year.

As a result, the requirement to distribute a substantial portion of our taxable income could cause us to:

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Distributions made by REITs do not qualify for the reduced tax rates that apply to certain other corporate distributions.

The maximum income tax rate for dividends paid by corporations to individuals, trusts and estates is generally 20%.

The maximum federal income tax rate for certain dividends paid by domestic corporations to individuals, trusts and estates is generally 20%.

Dividends paid by REITs, however, (other than distributions we properly designate as capital gain dividends or as qualified dividend income) are taxed at the normal income tax rate applicable to the individual recipient (currently a maximum rate of 37%) rather than the 20% preferential rate, subject to a deduction equal to 20% of the amount of certain “qualified REIT dividends” that is available to noncorporate taxpayers through 2025, which has the effect of reducing the maximum effective income tax rate on qualified REIT dividends to 29.6%.

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If such changes occur, we may be required to pay additional taxes on our assets or income.

These increased tax costs could adversely affect our financial condition and results of operations and the amount of cash available for payment of dividends.

These increased tax costs could adversely affect our financial condition and results of operations and the amount of cash available for distributions to our stockholders.

Property taxes may decrease returns on real estate.

Real property owned by us will be subject to real property taxes and, in some instances, personal property taxes or franchise taxes.

Such real and personal property taxes and franchise taxes may increase as property tax or franchise tax rates change and as the properties are assessed or reassessed by taxing authorities.

An increase in property taxes on or franchise taxes related to our real property could affect adversely our financial condition, results of operations, cash flow and ability to make distributions to stockholders and could decrease the value of that real property.

Such real and personal property taxes and franchise taxes may increase as property tax or franchise tax rates change and

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as the properties are assessed or reassessed by taxing authorities.

Risks Associated with Debt Financing

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As of December 31, 2021, we had total outstanding indebtedness of approximately $1.9 billion and a total debt to gross assets ratio of 37.1%.

Although the instruments governing our unsecured and secured indebtedness limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial.

Although the instruments governing our indebtedness limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial.

We may incur additional indebtedness to acquire properties or other real estate-related investments, to fund property improvements, and other capital expenditures or for other corporate purposes, such as to repurchase shares of our common stock through repurchase programs that our board of directors have authorized or to fund future distributions to our stockholders.

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Our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control.

Our failure to pay amounts due with respect to any of our indebtedness may constitute an event of default under the instrument governing that indebtedness, which could permit the holders of that indebtedness to require the immediate repayment of that indebtedness in full and, in the case of secured indebtedness, could allow them to sell the collateral securing that indebtedness and use the proceeds to repay that indebtedness.

For example, defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions.

Although no such instances exist as of December 31, 2020, if we were to default on our indebtedness, we could lose the property securing the loan that is in default.

For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage.

If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but we would not receive any cash proceeds.

Moreover, any acceleration of, or default, with respect to any of our indebtedness could, in turn, constitute an event of default under other debt instruments or agreements, thereby resulting in the acceleration and required repayment of that other indebtedness.

In addition, while we do not currently anticipate doing so, we may give full or partial guarantees to lenders of mortgage debt on behalf of the entities that own our properties if circumstances warrant that action.

If we were to give a guaranty on behalf of an entity that owns one of our properties, we would be responsible to the lender for satisfaction of the debt if it were not paid by such entity.

If any mortgages or other indebtedness contain cross-collateralization or cross-default provisions, a default on a single loan could affect multiple properties.

If any of our properties are foreclosed on due to a default, our ability to pay cash distributions to our stockholders will be limited.

In the future, we may need to refinance all or a portion of our indebtedness on or before maturity.

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Any of these events or circumstances could have a material adverse effect on our financial condition, results of operations, cash flows, the trading price of our securities and our ability to satisfy our debt service obligations.

High interest rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income, and the amount of cash distributions we can make.

Rising interest rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income, and the amount of cash distributions we can make.

If debt financing is unavailable at reasonable rates, we may not be able to finance the purchase of properties.

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If interest rates are higher when we refinance our properties, our income could be reduced.

We may be unable to refinance properties.

If any of these events occur, our cash flow could be reduced.

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We are subject to certain restrictions pursuant to the restrictive covenants of our outstanding indebtedness, which may affect our distribution and operating policies and our ability to incur additional debt.

Loan documents evidencing our existing

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indebtedness contain, and loan documents entered into in the future will likely contain, certain operating covenants that limit our ability to further mortgage the property or discontinue insurance coverage.

Loan documents evidencing our existing indebtedness contain, and loan documents entered into in the future will likely contain, certain operating covenants that limit our ability to mortgage a property or discontinue insurance coverage.

In addition, the agreements governing our existing indebtedness contain financial covenants, including certain coverage ratios and limitations on our ability to incur secured and unsecured debt, make dividend payments, sell all or substantially all of our assets, and engage in mergers and consolidations and certain acquisitions.

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In addition, failure to meet any of these covenants, including the financial coverage ratios, could cause an event of default under and/or accelerate some or all of our indebtedness, which would have a material adverse effect on us.

Increases in interest rates would increase the amount of our variable-rate debt payments and could limit our ability to pay dividends to our stockholders.

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Increases in interest rates would cause the amount of our variable-rate debt payments to also increase and could limit our ability to make distributions to our stockholders.

Currently, any outstanding draws on our $500 Million Unsecured 2018 Line of Credit and our variable-rate debt instruments which are not subject to hedging under interest rate swap agreements represent our exposure to interest rate changes.

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However, increases in interest rates could increase our interest costs associated with this variable rate debt to the extent our current locks expire and new balances are drawn under the facility.

Such increases would reduce our cash flows and could impact our ability to pay dividends to our stockholders.

Such increases would reduce our cash flows and could impact our ability to make distributions to our stockholders.

In addition, if we are required to repay existing debt during periods of higher interest rates, we may need to sell one or more of our investments in order to repay the debt, which might not permit realization of the maximum return on such investments.

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The potential termination or renegotiation of the terms of the interest rate derivative contracts as a result of changing counterparties through insolvency or merger could result in an adverse impact on our results of operations and cash flows.

Changes in the method pursuant to which the LIBOR rates are determined and the phasing out of LIBOR after 2021 may adversely affect our results of operations.

LIBOR and certain other “benchmarks” are the subject of recent national, international and other regulatory guidance and proposals for reform.

These reforms may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted.

In particular, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

The cessation date for submission and publication of rates for certain tenors of U.S.

dollar LIBOR has since been extended by the ICE Benchmark Administration until mid-2023.

While this announcement extends the transition period, the United States Federal Reserve issued a statement advising banks to stop new U.S.

dollar LIBOR issuances by the end of 2021.

In the United States, the Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for U.S.

dollar LIBOR.

Financial regulators in the United Kingdom, the European Union, Japan, and Switzerland also have formed working groups with the aim of recommending alternatives to LIBOR denominated in their local currencies.

Although SOFR appears to be the preferred replacement rate for U.S.

dollar LIBOR, it is unclear if other benchmarks may emerge or if other rates will be adopted outside of the United States.

As of December 31, 2020, approximately $555 million of our outstanding indebtedness had interest rate payments determined directly or indirectly based on LIBOR.

The replacement of LIBOR with SOFR may adversely affect our results of operations.

The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates and will cease publication of USD LIBOR as of June 30, 2023.

The Federal Reserve Board ("FRB"), Federal Deposit Insurance Corporation ("FDIC"), and Office of the Comptroller of the Currency ("OCC") have issued supervisory guidance encouraging banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.

The Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified SOFR as its preferred alternative for USD LIBOR.

As of December 31, 2021, our $500 Million Unsecured 2018 Line of Credit and our $250 Million Unsecured 2018 Term Loan had interest rate payments determined directly or indirectly based on LIBOR.

In addition, we currently have interest rate swaps with a notional value of $100 million that also use LIBOR as a reference rate.

Any uncertainty regarding the continued use and reliability of LIBOR as a benchmark interest rate could adversely affect the performance of LIBOR relative to its historic values.

Even if financial instruments are transitioned to alternative benchmarks, such as SOFR, successfully, the new benchmarks are likely to differ from LIBOR, and our interest expense associated with our outstanding floating rate indebtedness or any future indebtedness we incur may

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Transitioning to an alternative benchmark rate, such as SOFR, may result in us incurring significant expense and legal risks, as renegotiation and changes to documentation may be required in effecting the transition.

The replacement or disappearance of LIBOR may adversely affect the value of and costs associated with our LIBOR-based obligations and the availability, pricing and terms of LIBOR-based interest rate swaps we use to hedge our interest rate risk.

Alternative reference rates, such as SOFR, may not align with our assets, liabilities, and hedging instruments, which could reduce the effectiveness of certain of our interest rate hedges, and could cause increased volatility in our earnings.

We may also incur expenses to amend and adjust our indebtedness and swaps to eliminate any differences between any alternative reference rates used by our interest rate hedges and our outstanding indebtedness.

Even if our financial instruments are successfully transitioned to SOFR, the interest rate payments determined using SOFR may differ from what such interest rate payments would have been using LIBOR, and the interest expense associated with our $500 Million Unsecured 2018 Line of Credit and our $250 Million Unsecured 2018 Term Loan, or any future indebtedness we incur, may increase relative to what such interest expense would have been had LIBOR continued to have been used as the reference rate.

Additionally, SOFR may not align with our assets, liabilities, and hedging instruments, which could reduce the effectiveness of certain of our interest rate hedges, and could cause increased volatility in our earnings.

We may also incur expenses to amend and adjust our indebtedness and swaps to eliminate any differences caused by the replacement of LIBOR with SOFR.

Any of these occurrences could materially and adversely affect our borrowing costs, business and results of operations.

A downgrade in our credit rating could materially adversely affect our business and financial condition.

The credit ratings assigned to our debt securities could change based upon, among other things, our results of operations and financial condition.

If any of the credit rating agencies that have rated our debt securities downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations.

The credit ratings assigned to our unsecured debt securities could change based upon, among other things, our results of operations and financial condition.

If any of the credit rating agencies that have rated our unsecured debt securities downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations.

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General Risks

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however, we bear all expenses incurred by our operations, and our funds generated by operations, after deducting these expenses, may not be sufficient to cover desired levels of distributions to our stockholders.

Any change in our distribution policy could have a material adverse effect on the market price of our common stock.

Any change in our dividend policy could have a material adverse effect on the market price of our common stock.

There are significant price and volume fluctuations in the public markets, including on the exchange which we listed our common stock.

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• actual or anticipated variations in our quarterly operating results;

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• changes in our earnings estimates or publication of research reports about us or the real estate industry, although no assurance can be given that any research reports about us will be published or the accuracy of such reports;

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• the realization of any of the other risk factors described in this report.

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Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may adversely affect the market price of our common stock.

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Market interest rates may have an effect on the value of our common stock.

One of the factors that investors may consider in deciding whether to buy or sell our common stock is our distribution rate as a percentage of our share price, relative to market interest rates.

One of the factors that investors may consider in deciding whether to buy or sell our common stock is our dividend distribution rate as a percentage of our share price, relative to market interest rates.

If market interest rates increase, prospective investors may desire a higher yield on our common stock or seek securities paying higher dividends or yields.

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There were no unresolved SEC staff comments as of December 31, 2021.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors